Please ensure Javascript is enabled for purposes of website accessibility Businesses Need Working Capital as Loans Become More Challenging

Businesses Need Working Capital as Loans Become More Challenging

By December 1, 2022Business
trucking company

Businesses across all industries need working capital more than ever. At the same time, looming inflation, potential interest rate hikes, and other pressures have lenders tightening their requirements, making it more challenging for businesses to qualify for loans. So how are businesses getting the funding they need in an uncertain economy?

Loans and Inflation

We can look back for decades and a very simple equation. When inflation rises or needs to be offset, the Federal Reserve raises interest rates. The reason for this is because that is really the only tool available they have to mitigate things when they get thrown off balance. The downside of this is that when the Fed raises interest rates, businesses with existing loans end up paying more, and that number rarely goes back down unless future opportunities open for refinancing. Additionally, Banks and other lenders mitigate risk by raising their lending requirements. This means that businesses have to have higher credit ratings, demonstrate higher financials, and put up more collateral to clear the first hurdles when applying for funding, and that will not necessarily guarantee approval.

The Business Perspective on Loans

The truth is, between interest rate hikes and extremely high loan requirements, small and medium-sized businesses feel left out of the conversation, and new businesses feel like they cannot secure the financing they need. This leaves business owners with very few options. Alternative and private lenders frequently have very high interest rates and low loan-to-value ratios, often placing businesses in an even more precarious financial situation than where they are now, even if they are approved.

At the same time, businesses are swearing off loans completely until the economy becomes more stable. Why take on debt if the rates are so high? Why sacrifice what little collateral they have only to get a loan amount that falls short of what is needed to thrive and grow? Not relying on debt-based financing is a savvy strategy, but the downside is that growth plans get put on the back burner, and projections get lowered until some unknown time.

There Is a Debt-Free Financing Solution for Businesses

Asset-based lending is one way for businesses to get access to the working capital they need without taking on debt or dealing with prohibitively high interest. For business owners who might not be familiar, asset-based lending is a means of creating a source of capital structured around the value of assets that are owned by a business. Invoice factoring is a form of asset-based lending that has been around longer than modern debt-based loans. Invoice factoring lets businesses leverage their unpaid receivables for access to immediate cash. Instead of waiting 30, 60, or 90 days for customers to make payments, businesses can use invoice factoring to get revenue faster, without taking on debt or needing high credit ratings. Invoice factoring offers businesses a wide range of benefits that traditional loans do not, such as:

  • There are no ongoing payments with invoice factoring. Loans require ongoing fixed payments regardless of sales and revenue.

  • There are no ongoing or fluctuating interest rates with factoring, only a small percentage for processing. Loans have interest rates that can go up unpredictably when the Federal Reserve makes hikes.

  • Factoring does not place debt on the books. Loans, by their very nature, are based on debt.

  • Factoring does not impact credit ratings, while loans are structured around how good your business credit score is.

  • Businesses that use invoice factoring accelerate their cash flow and can build up working capital reserves. Traditional loans are not capable of offering that.

Because invoice factoring is not based on debt, credit, or collateral, it offers businesses of all sizes – across all industries – a path forward when traditional loans are pushing them to the sidelines. Single Point Capital specialized in invoice factoring services nationwide. We will turn your unpaid receivables into cash and make funds available within a single day. No debt. No impacted credit ratings. No interest rate hikes. Whether you are looking to build up working capital to weather an uncertain economic outlook, or if you simply want to catch up on your accounts receivable, contact the team at Single Point Capital today.

Leave a Reply